Japan Inc. Urges Lower Corporate Taxes, Joining TPP for G

Shinzo Abe, Japan's prime minister and president of the Liberal Democratic Party (LDP), center, places a red paper rose on an LDP candidate's name to indicate an upper house election victory as other party executives clap at the party's headquarters in Tokyo on July 21, 2013. Photographer: Tomohiro Ohsumi/Bloomberg

July 22 (Bloomberg) -- Prime Minister Shinzo Abe’s victory
in yesterday’s election solidifies his control over the Japanese
government and gives him a freer hand to carry out economic
reforms. Japan’s business leaders have a wish list for him.

Executives would like Abe to use his newfound power to cut
corporate taxes, ease regulations, loosen labor laws and join an
international free-trade agreement, calling such steps the most
promising way to build on efforts to get the world’s third-largest economy growing again after two decades of stagnation.

“We need to be on an equal footing with competitors
overseas,” Norio Sasaki, vice board chairman at Toshiba Corp.,
said at a gathering of industry leaders last week in Karuizawa,
northwest of Tokyo. “The government needs to take steps to
remove customs barriers, such as through the Trans Pacific
Partnership agreement, and reduce corporate taxes.”

The Japanese yen and stocks both rose after the Liberal
Democratic Party election victory, which gives it an outright
parliamentary majority and bequeaths Abe the clout to push
through economic reforms and deregulation. The LDP and partner
New Komeito gained at least 74 of the 121 seats up for grabs in
the 242-seat upper house. The coalition now controls both
legislative chambers, called the Diet, for the first time since
2007 and need not face another election for three years.

Renaissance in Growth

“The new government should seize the opportunity to drive
a renaissance in Japan’s growth,” Shinichiro Ito, Chief
Executive Officer of airline ANA Holdings Inc., said in an e-mailed statement. “I hope they will move forward speedily.”

“I welcome the end of a split Diet,” Toshifumi Suzuki,
Chairman of retailer Seven & I Holdings Co., said in a faxed
statement. “I look forward to seeing how the third arrow of
Abenomics growth strategy is put into action with this decision-making power.”

Among the burdens reducing the incentive for Japanese
companies to invest at home is the second-highest level of
effective corporate taxes in the Group of Seven nations,
executives say. The nation’s 35.6 percent corporate tax rate
compares with 25 percent in China and 17 percent in Singapore,
according to the Ministry of Finance. Only the U.S. has a higher
rate at 39.1 percent, according to Organization for Economic
Cooperation and Development data.

Corporate Tax

“We want corporate taxes in line with other nations,”
Hiroshi Tomono, chairman of the Japan Iron and Steel Federation
and president of Nippon Steel & Sumitomo Metal Corp., said in
Karuizawa.

Abe said this month he wants to discuss cutting the
corporate tax rate, without giving details before the election.

Toshiba’s Sasaki said Abe should consider lowering the rate
to as low as 20 percent.

“The Japanese government should place priority on
reforming taxes,” Takashi Kawamura, chairman of Hitachi Ltd.,
Japan’s second-largest manufacturing company, said in Karuizawa.

Lower corporate rates may draw criticism from voters, who
are facing a higher tax burden as Japan plans to increase the
national consumption tax in April, for the first time in 17
years, to 8 percent from 5 percent.

Tax Incentives

Abe said July 4 it’s necessary to increase the consumption
tax because of rising social-security costs and the nation’s
debt burden. At the same time, raising the tax risks choking off
an economic recovery by damping consumption. The prime minister
has said he’ll consider economic conditions when making a final
decision.

Abe may be able to reduce opposition to a corporate tax cut
by focusing on incentives first, said Masahiro Sakane, a senior
adviser for Komatsu Ltd. and vice chairman of the Keidanren,
Japan’s biggest business lobby.

“The government could support companies intending to
shoulder the risk of investments in facilities by offering tax
breaks,” Sakane said. “Reducing corporate taxes could wait
until after seeing the impact of such tax breaks.”

The prime minister has pledged to spur capital spending in
the world’s third-largest economy back to the level before the
2008 financial crisis, and to increase support for companies
operating overseas. He has promised a legislative campaign to
loosen rules on businesses, ranging from non-prescription drugs
to construction.

Lifetime Employment

The Keidanren business lobby is also urging reform of the
labor market to promote a shift of the workforce to growth
industries and harnessing diversified talent, it said in a
policy statement in May.

Japan’s industrial expansion in the 1960s and 1970s was
underpinned by the so-called three major labor practices of
lifetime employment, the seniority system and corporate labor
unions. Japan ranks 134th out of 144 nations in terms of ease of
hiring and firing, according to the World Economic Forum’s
Global Competitiveness Report in 2012.

The labor system “is a little too rigid when companies try
to improve competitiveness,” Fumio Ohtsubo, Panasonic Corp.’s
former chairman, said in April.

Free-Trade Agreement

Japan’s government is also planning to join talks on the
Trans Pacific Partnership regional trade deal as soon as this
month. The negotiations are aimed at eliminating tariff barriers
between the member countries in a region the U.S. says accounts
for more than 40 percent of world trade.

Joining the TPP would boost Japan’s gross domestic product
by 3.2 trillion yen ($32 billion) while cutting farm and marine
production by 3 trillion yen, according to a government
estimate.

TPP member countries plan to complete negotiations by the
end of the year, according to a trade ministers’ statement in
April.